Low Volume Stock Trading

Summer is typically a quiet time in the stock market. The old saying is to sell in May and go away as less money flowing into the market over the summer months decreases trading volume and tends to cause a slow decline in prices. And low volume stock trading can be tricky as technical analysis of stocks is more accurate at high volume. Additionally, liquidity may suffer in lightly traded stocks adding risk to low volume stock trading. Nevertheless, the US stock market has been going up since the start of May as manufacturing numbers from the USA and China as well a promising US jobs report imply a continuing global economic recovery. The SPDR S&P 500 started May at $188 a share and ended at $192 a share. Now as July starts it is trading at $198 a share.

Putting on Your Investor Hat

When low volume stock trading makes short term technical trading less accurate a good idea is to think like a short term investor, consider the fundamentals and trade accordingly. This is swing trading and you will typically hold a trade for a few days to a couple of weeks. In this case low volume stock trading is not so risky as you are not looking to profit based upon second to second statistical analysis but rather your own analysis of the economy, global events and Federal Reserve policy decisions.

Low Volume Stock Rallies

Standard thinking has it that a rally is not a bull market until it occurs at high volume. But, if you bought stock ABC at $7 a share and it is not trading at $30 a share what do you care about volume? The concern of the experts is that if a rally is not supported by volume it will likely cool off and back up taking your gains with it. But, we are not talking about long term buy and hold investing here. In swing trading you can take a little off the table each time that the stock price rises, remembering the old adage that you do not have a profit until you take a profit. And, remember the market crash at the start of the second worst recession in three quarters of a century. There are people who lost not only their life savings but wealth that it took their family generations to accumulate. Do not expect to see these folks jump back into the stock market at the first sign of an up tic. The problem is, of course, that those who first see a rally and jump in early are the ones who gain the lion’s share of the profits. All too many of the folks who lost everything in the market crash rode their assets down to the bottom and then sold in despair just when they should have been buying. They had no sense that in trading a down market you can reap huge profits from getting out before the bottom falls out, anticipating the bottom and jumping back to share in the profits of resurgence.

Adaptable Trading Strategies

There are lots of stock trading strategies. Not all of them are useful in all markets. In low volume stock trading it may be well to think more like a short term investor than a minute by minute trader. It may also be well to avoid excessive greed. A nice profit is a nice profit. Take it and be happy. Remember that sometimes the experts are right and a low volume stock rally will reverse and take your profits with it. On the other hand when such a rally deflates is just the moment to adapt your trading strategy to a more volatile market.

Disclaimer: Trading and investing involves significant financial risk and is not suitable for everyone. No content on this website should be considered as financial, trading, or investing advice. All information is intended for educational purposes only.